2014 the year of Canadian Technology and Services Stocks CAE Inc, Constellation Software, CSU, OTEX, TSX (aviation training, software, growing companies, acquisitions)

CAE Inc (nyse:CAE) - aviation stocks, aviation training services, aerospace industry, healthcare sector

This year CAE Inc of Montreal became one of the world's largest simulation technology companies.  Its business is arguably the most diversified in the training services sector - at just under 200 locations in over 30 countries the company offers training services for pilots (civil aviation, defence), and manufactures key simulation technology for healthcare and security agencies.  50% of revenue comes from the sale of products (simulators and related technology) with the rest coming from services (aircraft operations training - over 100,000 civil and military personnel).

 

why this stock ?  it's low risk !

Among industry observers CAE enjoys a rock solid reputation.  It's extremely diversified (does not rely on a single market sector or customer), owns unique technology that has quickly become a mainstay in global aerospace training.  Business from healthcare is strong (hospitals and universities).

• a global leader
• the leading provider of commercial and helicopter aviation training services worldwide - second leading provider of business aviation services - market leader in key regions of China, India, South America
• highly exposed to the growing defence and security sector (6% increase in revenue quarter ended September 30, 2014 - thanks to more activity in north amerca, europe and asia).
• secured new contract to train the US Air Force
• four consecutive years of revenue growth (2,114.90 2,035.20 1,821.20 1,630.80)
• four consecutive years of dividend growth (0.22 0.19 0.16 0.15)
• earnings up 38% last fiscal year (March to March) to $190 million.

nyse:CAE

1-year  6-months  3-months  1-month

1.2%  (1.4)%  6.8%  (1.2)%

Constellation Software Inc

2014 was a great year for Constellation Software Inc of Toronto (tsx:CSU).  The stock is up 60% for the year, bringing the market capitalization of the company to just under $8 billion and for good reason - in the latest quarter

- revenue is up a hefty 33% to $419 million (acquisitions accounted for all but 4%).

- earnings up 44% to $32 million vs $22m (per share $1.51 vs $1.05).

- adjusted ebitda up 73% to $100 million.

it's not just that last quarter either that has investors gleaming - over the last nine months adjusted ebitda is up 55% to $244 million.  net income up 26% -> $64 million.

what I like about the company 

it manufactures market leading software and has exposure to a number of industries (public and private).  the software it provides is critical making its products invaluable (meaning there are few if any alternatives - makes for more reliable customers).  Annual revenue recently surpassed $1 billion ! and quarterly growth is light years ahead of the competition (over 50%).  For a company with a market value over $7.3 billion it's an amazing feat to record 60% growth in stock price in just one year.

tsx:CSU    stock price change

1-year   6-months 3-months 1-month

 59.48%  27.02%       21.35%    4.19%

Open Text Corporation of Waterloo, Ontario  (b2b services, yahoo) - nasdaq:OTEX

2014 was a wonderful year for Open Text Corporation - It's New Year's Eve and year-to-date the stock up 28% to $58.26 (market cap at $7.2 billion on the nasdaq).  Like other Canadian success stories

Gold Price Ratio Suggests Recession Looming, Target TGT Underperforms & Growth Stocks Nasdaq AFCE, ALXN

Relative to the United States, Canada has higher wages, higher fuel prices, stronger unions, and higher distribution costs and that often leads to higher retail prices.  Target Canada will open its first 124 stores in 2013 but it won't be an easy transition; The Canadian dollar is at a low right now (95.0c US) which compounds the problems Target will face in adjusting its prices to Canadian expectations.  Since launching in select markets earlier this year a new problem has cropped up :  consumer satisfaction dipped below 30% in August (vs May).

Target (nyse:tgt) Underperforming

Latest quarterly profit -13% weighed down by Canadian operations (expansion costs).  As of quarter-end Canada is home to 68 locations with another 56 to open by year-end.  Canada accounted for $275 million of the company's $17,120m sales this quarter but Canadian performance still not up to par.  Total North American sales were suppose to be up 2% this quarter not the realized 1.2%.  Earnings at 96 cents a share ($611m vs $704m last year) a cent below expectations.

Recession Looming ?

Signs certainly suggested it on Friday when growth in silver and gold prices contrasted with next to no change for the primarily industrially used platinum group metals. 

So far in August (1-20) investors extracted $30.3 billion from US bond mutual funds which amounts to the highest monthly outflow in 19 years.  Markets both domestic and international have benefited from the US Fed bond buying program which was originally instituted to help keep mortgage interest rates down, however what the Fed is now saying is that, even after its eventual exit from the program, short term rates shouldn't go up even though long term rates will.

The Fed purchases $85 billion worth of bonds each month - half mortgage bonds half treasury notes, as a sort of quantitative easing.  Because the Fed isn't being clear on when it will stop buying mortgage bonds, interest rates are gradually moving up consquently people wanting to buy homes are doing so before the expected spike in rates (July sales of existing homes +17.2% versus last year).  30-year fixed rates - May 1 : 3.35% ; August 23 : 4.58% highest since July 2011 ; 15-year rate @ 3.6%.
Unemployment remains a problem, it was as high as 8.2% in July.  Also, jobs numbers (+170th last month) are weak - most of the new jobs are part time and not specialized;  In June for example 400,000 people with college degrees lost jobs while 250,000 people without college degrees got jobs.  Another sign pointing to a weak economy - average age of vehicles on the road now 11.1 years, the highest on record.